We were asked by the San Fernando Valley Business Journal to write an article about the growth in medical office construction. Here is the text of the article that was published.
The effects of the Affordable Care Act continue to be debated throughout America’s business community but one thing is certain – more people being covered by health insurance means an increase in medical office construction.
At Parker Brown, we have seen medical office construction grow from a relatively small amount of our work to approximately half of our work in 2013. The trend is continuing in 2014.
The burst of activity is result of several factors. One is the demand that built up during the Great Recession of 2007-2009. Many medical providers just held their cards close to the vest while waiting out the recession and government action on the Affordable Care Act. When the Supreme Court upheld the Act in 2012, it meant millions of people would be added to insurance rolls. Medical providers and even real estate investors developed plans to construct facilities to handle the growing numbers of people who would be covered.
For many of the medical providers, that meant an aggressive plan to set up numerous facilities in markets where they wanted to provide care and coverage.
One such medical provider is UCLA Health System. Parker Brown partnered with UCLA on its first major venture in Ventura County – a tenant improvement project in Thousand Oaks that created a new home for UCLA’s administrative and doctor’s offices.
Since that time, we have partnered with UCLA health to build out seven additional facilities in Ventura County, Malibu and West Los Angeles. Many of these projects were interior build-out of existing office spaces.
Medical has been a part of our business for some time.
In 2011, we completed a major job for the Southern California Orthopedic Institute in Van Nuys. SCOI hired us to build out an area to create more surgical rooms and a larger waiting area.
In 2013 we completed the Gold Coast Surgical Center in Santa Barbara.
“Building medical facilities isn’t a lot different than many jobs,” said Scott Brown, co-owner of Parker Brown Inc. “Sometimes there is more plumbing and electrical required because of the surgical centers and such, but the clients are the same as any other clients. They are looking for a high quality job, delivered on time and staying within their budget.”
John Parker, co-owner of Parker Brown, said that’s the most gratifying aspect of the partnership with UCLA Health. “They are a very good customer with exacting standards and timetables and budgets. The fact that they have chosen to work with us again and again means a lot to us about the quality of work that we do.”
Health providers are under extraordinary economic pressures as they try to weather consolidation in the market while adding to the number of people provided with coverage and care.
The medical industry’s response to the pressures has been to move out into the communities with specialty centers and out of the acute care hospitals. Expect to see more free-standing surgery centers, specialty centers and emergency care facilities.
This is good news for general contractors such as Parker Brown and commercial real estate owners. One national survey showed that office vacancy has dipped to its lowest rate since 2008 and that 64 million square feet of medical office space would be built during the next decade.
Tom Dwyer, CBRE vice president in Ventura County and the Conejo Valley, said the expansion of health facilities has had a significant effect on the absorption rate of vacant space. “The growth in medical – be in acquired property or leased property – has helped a lot with the vacant space we had here in the Conejo Valley.” He said that virtually all the existing medical providers in the area are expanding and other new players are making serious inquiries into the market.
A survey of 156 health care real estate developers released in December 2012 by Newmark Grubb Knight Frank, a brokerage based in New York, found that 65% said development would be higher in 2013 than in 2012.
“We see more partnering among hospitals and physicians,” said Parker. “They know that they need to offer services to the people closer to where they live.”
Brown noted that government providers of health care, such as Los Angeles County, are expanding services into communities as well. Parker Brown recently earned a contract with Los Angeles County Mental Health for a major remodel of a downtown Los Angeles facility.